Goldman bullish on biopharma in 2018

From Deloitte Centre for Health Solutions

The eighth annual pharmaceutical innovation study by the Deloitte Centre for Health Solutions looks at the state of R&D in the biopharma industry and estimates the return on investment that 12 large cap biopharma companies may expect to achieve. The report also includes an extension cohort of four mid-tier biopharma companies.

Key findings for top 12 biopharma

* R&D returns have declined to 3.2 per cent, down from 10.1 per cent in 2010
* It now costs these companies almost $2bn to bring a drug to market
* Projected peak sales per asset more than halved between 2010 and 2016 but have increased by 18% in 2017
* This year’s uptick in costs and sales per asset is due to the drop in the number of assets in late-stage pipelines–from 189 in 2016 down to 159 in 2017.  
* Smaller firms outperform larger peers: Since 2015, in addition to the 12 companies included in the original cohort, four mid-tier biopharma companies have also been added to the study. These continue to out-perform the original pharma cohort, with projected returns of 11.9 per cent in 2017 (up from 9.9 per cent in 2016), but are still below the high of 17.7 per cent set in 2014. 
* Rise of cancer therapies: From 2010-17 the percentage of forecast late-stage pipeline revenue from oncology for the top 12 companies has increased significantly, from 18 per cent in 2010 to 37 per cent in 2017. High levels of unmet medical need and higher potential returns are attracting companies. 
* Emerging technology and new drug development paradigms offer promise: Emerging technologies such as artificial intelligence, real world evidence (RWE), and new clinical trial models have the potential to transform how drugs are discovered, developed and brought to patients.

Executive summary
Drug development continues to be challenging, complex, costly and time-consuming. This coincides with a growing tidal wave of confounding communicable and non-communicable diseases that threaten global public health. Although there are promising platforms emerging to tackle these complex diseases, the challenge will be to develop these platforms in an accelerated, e cient way to create near-term value for all stakeholders. It will require a transformed model that involves new paradigms for drug development and emerging technologies.

Since 2010, our series Measuring the return from pharmaceutical innovation has provided insight into the state of R&D in the biopharma industry. Speci cally, we estimate the return on investment that 12 large cap biopharma companies might expect to achieve from their late-stage pipelines. For the third consecutive year, we also include an extension cohort of four mid-to-large cap biopharma companies in our analysis. The internal rate of return (IRR) that we calculate serves as a proxy to measure the industry’s ability to balance investment (initial and ongoing capital outlay) with the cash in ows (drug sales) biopharma companies are projected to receive as a result of this investment. It also provides a basis for discussion and debate between payers, Health Technology Assessment groups and the biopharma industry, to help determine the value for money of innovation.

In analysing our results, we explore strategies used across the industry to maximise IRR, either by reducing the costs of R&D or by maximising the value of late-stage pipeline assets. This year, we also use a wider lens to look to the future, analysing some emerging technologies that we predict will in uence the future of R&D dramatically. Overall, we aim to provide a view of R&D that helps biopharma companies overcome many of the challenges they face – and will continue to face – over the next several years as they strive to achieve a sustainable future, including bringing to market new medical innovations that demonstrate measurable value to patients.

Improving projected returns continues to be challenging
Over our series, we have seen projected returns for the original cohort of 12 large cap companies decline from just over ten per cent in 2010 to under four per cent for the past two years. Similarly, the extension cohort has seen its IRR decline from over 17 per cent in 2013 to just under 12 per cent this year, although this year showed an uptick of two per cent from 2016. These declines are driven by two factors:

• the increase in the average cost to bring an asset to market, to $1,992 million for the original cohort (from $1,188 million in 2010) and $2,173 million for the extension cohort (from $1,034 million in 2013)

• declining average peak sales, even though peak sales per asset increased between 2016 and 2017 for both of our cohorts, with the average peak sales per asset for the original cohort increasing from $394 million to $465 million and the extension cohort returning to blockbuster levels (from $801 million to $1,128 million).
While the extension cohort replenished their pipelines, the original cohort saw a sharp decrease in the number of late-stage pipeline assets in the last year, which had remained fairly consistent over the previous seven years. This decrease in asset numbers was the main driving force that led to the increase in the average cost to bring an asset to market for the original cohort. This suggests that the focus on developing assets that have higher potential peak sales is counterbalanced by a higher probability of failure. It is also possible that in the past year, the original cohort has purposefully removed a number of assets from their pipelines that they did
not expect to meet regulatory or reimbursement thresholds for viability.







www2.deloitte.com/uk/en/pages/life-sciences-and-healthcare/articles/measuring-return-from-pharmaceutical-innovation.html?